A cut price PlayStation 3 (PS3) with a smaller hard drive and no backwards compatibility with previous consoles goes on sale later this month.

The £299 PS3 has a 40-gigabyte hard disk and will be released in Europe, Middle East, Australia and New Zealand.

Sony has also slashed the price of the 60GB model from £425 to £349, as it hopes to ignite sales.

Ray Maguire, head of PlayStation UK, said he expected the PS3 user base to double by Christmas.

Maguire said the release of the 40GB PS3 was a 'strategic decision' and not the result of lower-than-expected sales of the PlayStation 3.

'We have done market research, looked at fans' forums and the feedback from consumers is that they are anxious to get into PlayStation 3 but it is too expensive,' he told BBC News.

Sony was the market leader in the previous two generations of console releases. However, Nintendo is now in pole position closely followed by Microsoft's Xbox 360.

More than 5.5 million PlayStation 3 consoles have been shipped worldwide, compared with more than 10 million each of the Wii and Xbox 360.

He said he expected some existing PS3 owners to feel frustrated at the price cut for the 60GB model coming just six months after the machine was first launched.

The new PS3 will be unable to play PlayStation 1 and 2 games, has a reduced number of USB ports, from four to two connections, and no slots for memory cards. It goes on sale from 10 October.

'The cost of peripherals for adding USB connections and memory stick options is low,' said Maguire explaining the alterations.

He added: 'Backwards compatibility was reasonably expensive for us to implement and taking it out enabled us to reduce the price.'

The entry-level PS3 is now the same price as an Xbox 360 Elite, which has a 120GB hard drive.

However, the PS3 has built-in wi-fi connectivity and a high definition Blu-ray DVD player.

An add-on HD-DVD drive and wi-fi peripheral are available to Xbox 360 owners at extra expense.

The Nintendo Wii costs £179 but does not have high definition graphics or DVD playback, and relies instead on an innovative motion-sensitive control system.

There is no confirmation on the launch of the 40GB PS3 in North America and Japan, which have their own divergent models and price points.

Maguire said: 'The people who want to get into new technology early are prepared to pay a premium.

'We want to get the console to the next level; we have re-engineered the machine to bring the price down.'

He added: 'We have invested a lot of money in reaching this price point.'

Sony is still losing money on each console sold, said Mr Maguire, but would lose less money on the 40GB machine.

'We are in an investment phase,' he said.

Sony was criticised last year when it unveiled its £425 price point for the PlayStation 3 with many analysts saying the firm would struggle to win over gamers.

'It has taken us that long to get the cost down, it's as simple as that,' said Maguire.